MBW Reacts is a sequence of brief remark items from the MBW group. They’re our ‘fast take’ reactions – by a music biz lens – to main leisure information tales.
Spotify‘s share worth just isn’t in a great way.
It closed yesterday on the NYSE at $112.14. That’s down 54% on the place it was on the opening buying and selling day of 2022 (January 3); it’s additionally lower than a third of the dimensions it was ($364.59) at its all-time peak in February final 12 months.
The consequence: Over the previous 14 months, Spotify has misplaced a minimum of $47.8 billion in market cap worth (from $69.35 billion to $21.51 billion, in response to YCharts).
And these numbers could be about to worsen.
Tomorrow (April 27), Spotify will announce its newest quarterly fiscal numbers, for Q1 a.ok.a the primary three months of 2022.
You don’t want MBW to inform you that – for any consumer-facing subscription enterprise – this was 1 / 4 rocked by macro occasions: from family inflation / price of dwelling costs capturing upwards, to Vladimir Putin’s extensively condemned invasion of Ukraine.
Netflix is aware of precisely how damaging such components could be to an organization’s efficiency: Final week, the film streamer introduced that it had misplaced 200,000 web paid subscribers in Q1 across the globe.
The market’s response was unforgiving: Because it introduced its Q1 outcomes on April 20, Netflix has misplaced $65.4 billion – yup – in market cap worth.
That’s sufficient to purchase Elon Musk a couple of Twitter-and-a-half.
Now, it’s Spotify’s flip within the harsh glare of Quarterly Investor Land.
We don’t but know the numbers Spotify is because of announce in lower than 24 hours’ time. However we do know the strain is on.
MBW is unfortunately not an funding financial institution (at some point, buddies, at some point), and due to this fact we received’t have the ear of Spotify’s main executives on the agency’s earnings name tomorrow morning.
But when we did, listed here are three tough questions we’d positively ask them:
1) What’s going to occur to Spotify’s subscriber base within the first half of 2022?
Maybe probably the most troubling ingredient of Netflix’s Q1 outcomes final week wasn’t the 200,000 web loss in international paid subscribers (though that’s primarily what despatched its share worth right into a tailspin).
It was that Netflix is now projecting it is going to additionally lose an additional 2.0 million paid subscribers in Q2.
That’s fairly a collapse from the equal quarter in 2021, when Netflix added 1.5 million subscribers.
Again in early February, Spotify irked some influential figures on Wall Road by saying that it will now not offer steering past the subsequent quarter in its fiscal calendar.
Because of this, Spotify is now refusing to publish any projection for the place its international subscriber quantity will find yourself on the shut of 2022.
As an alternative, we simply have this: Spotify’s newest steering, issued in February (inside its FY ’21 outcomes), advised that the agency’s subscriber base would shut Q1 2022 at 183 million, up by 3 million on the 180 million subscribers it counted on the finish of 2021.
Subsequent to Spotify issuing this quantity on February 2, nevertheless, Russia invaded Ukraine (February 24), whereas the information about price of dwelling rises for households simply acquired scarier and scarier. (US inflation climbed to 8.5% in March, its highest level for over 40 years, in response to the Client Worth Index.)
Each of those components had been named by Netflix final week as contributing causes for its disappointing Q1 2022 subscriber determine. (Different components cited by Netflix included person password sharing, plus gradual client adoption of linked TVs.)
Netflix’s choice to shutter its operation in Russia – and finish all Russia-based subscriptions – proved decisive in its decline in Q1: Netflix’s instructed shareholders final week that it misplaced 700,000 web subscribers as a direct results of its actions in Russia; had this not occurred, NFLX would have ended Q1 with quarter-on-quarter international development of 500,000 subscribers.
For Spotify, occasions in Russia are prone to have an much more extreme impact on subscriber attain.
In March, SPOT’s CFO, Paul Vogel, introduced that the corporate anticipated round 1.5 million of its subscribers to “churn out” of Spotify’s numbers as a consequence of its choice to cease billing customers in Russia.
Spotify, bear in mind, mentioned in early February that it anticipated so as to add 3 million web subscribers in Q1. So with these 1.5 million subs in Russia subsequently phased out, that determine has already been reduce in half.
The large query now: with client costs escalating in numerous key international markets – not least by way of vitality costs – will Spotify see any additional decline in its current subscriber base, as folks look to chop family prices?
And will this extra decline see Spotify ‘do a Netflix’ and find yourself with unfavourable subscriber figures in Q1… or, certainly, in Q2?
A associated query: When Spotify struck its “stock-swap” deal with Tencent Music in 2017, the settlement basically cemented an settlement Spotify wouldn’t broaden its service into China.
(This truth was confirmed by Spotify’s then-CFO, Barry McCarthy, in 2018, when he mentioned: “Our mainland China technique is our funding in Tencent Music… We’ve no plans to compete with them in China.”)
With international music subscribers now wanting more and more arduous to draw for Spotify, was this actually such a good suggestion?
2) why didn’t you elevate costs correctly once you had the prospect? And What’s your upsell plan now your previous one has been destroyed by Apple and Amazon?
As MBW coated final week, the savior for Spotify’s subscription churn charge (versus Netflix’s) could be worth.
Spotify has been closely criticized by some within the music business for (by-and-large) refusing to budge up its $9.99 / £9.99 / €9.99 month-to-month cost for the standard particular person subscription account in key markets, together with the US, Germany and the UK.
That’s in distinction to Netflix, which has raised its costs a lot of occasions in recent times: Within the US, for instance, a Customary HD subscription to the ‘flix will now price you $15.99 per thirty days.
Because of this – mixed with the truth that Spotify has such an unlimited catalog of music versus Netflix’s selectively-licensed TV/movie providing – cash-strapped Spotify subscribers could also be much less prone to cancel their music service, than Netflix subs could be to cancel their TV/movie service.
There’s, although, one other lens by which to view this narrative.
Again earlier than the pandemic, in 2019, client situations had been significantly extra favorable for a Spotify worth rise. The inflation charge within the US that 12 months, for instance, was a really manageable 1.8%.
In Covid-hit 2020, that annual US inflation charge fell to simply 1.2%. And in every of the primary two months of 2021, it was lower than 2%.
Spotify telling its prospects that it was pushing up their month-to-month invoice in any of those time durations would possible have been met with far much less worth sensitivity (a.ok.a subscription cancellations) than it will at present, when tightening-of-belts and “do we actually want Spotify when YouTube is free?” conversations abound.
Does it now appear to be mis-management for Spotify to have resisted elevating costs (past a handful of smaller markets) over the previous 5 years? And in that case, how a lot has it price the corporate long-term?
There’s one apparent cause why Spotify may need resisted elevating its costs, in fact: The potential stranglehold of Apple, Amazon, and YouTube on music streaming – and their endless money piles.
Spotify is aware of that these giants’ subscription music companies provide (just about) the very same music catalog as its personal platform.
At any level, if these different platforms held agency at $9.99-per-month (or much less) as Spotify moved up its worth – even a bit – then Daniel Ek and co. may danger pushing price-sensitive prospects away to the competitors.
ince there’s hardly any unique music content material anymore, [people] would simply swap companies if anybody (okay: Spotify) elevated costs greater than only a few cents…or they’d simply return to the great previous piracy days.”
Spotify did have one elegant choice to encourage its customers to pay extra, in fact: an up-sell to a greater high quality of audio.
So it will certainly have been pleasing to SPOT traders to listen to the corporate announce final February at its Stream On occasion that Spotify HiFi – an HD audio launch – was on the way in which earlier than the tip of 2021.
Billie Eilish and Finneas had been even roped in to clarify why HD audio issues a lot to artists.
On the subject of “Apple and Amazon watching from the sidelines and laughing”… lest we overlook what occurred subsequent.
Inside three months of Spotify’s announcement that Spotify HiFi was incoming, Apple and Amazon collectively crushed any hope SPOT traders may need had of the corporate launching a $12.99/$15.99 HiFi tier.
Amazon did so by folding its HD-quality music providing – beforehand solely supplied at a premium worth – into its customary worth ($9.99 per thirty days) Music Limitless service.
Apple did so by launching each Lossless Audio and Spatial Audio (with assist for Dolby Atmos)… however, identical to Amazon, folded this into its standard-price Apple Music providing.
Shock, shock: In the long run, Spotify HiFi by no means materialized, as promised, in 2021.
If Spotify had any plans to launch a premium-price HiFi tier, it now knew doing so would look miserly to its prospects… when Apple and Amazon had been making a gift of equal improved-audio options to their subscribers for nadda.
So the query for Spotify administration tomorrow: When you’re too afraid of competitors from Apple and Amazon to boost your costs… and if Apple and Amazon have additionally destroyed your capacity to launch an HD audio up-sell… then what is your plan to enhance per-subscriber income within the months and years forward?
3) Artists leaving Spotify is beginning to change into an actual factor. Ought to traders be frightened?
Keep in mind again in January when Neil Younger and Joni Mitchell yanked their music catalogs off Spotify in protest at what they perceived to be Covid vaccine misinformation on Joe Rogan’s podcast?
Sure, we agree, it does really feel quite a very long time in the past. Nevertheless it occurred – and their music nonetheless ain’t on Spotify.
On the time, MBW advised in an analogous column to this one: “I believe that Neil Younger could also be about to show {that a} swathe of established artists – particularly status catalog artists – actually don’t want Spotify to outlive anymore.”
After which it appeared like this would-be pattern simply… went away. It by no means snowballed. It was a failed prediction.
Nevertheless, those that consider that it utterly vanished haven’t fairly been paying consideration.
There has arguably been no better catalog showcase in 2022 than the half-time Tremendous Bowl celebration of US hip-hop (and a touch of R&B) down the ages.
This stay medley, which occurred in mid-February, appeared nearly universally applauded and loved, and has thus far racked up over 83 million (official) performs on YouTube alone.
It featured incredible performances from every of Snoop Dogg, Dr. Dre, Mary J Blige, 50 Cent, Eminem, and Kendrick Lamar.
How did these artists capitalize on the frenzy of acclaim, consideration, and nostalgia that this efficiency generated?
Within the case of Snoop… he purchased the rights to the Demise Row model, plus the rights to a bunch of the label’s most celebrated albums – together with his personal Doggystyle and Tha Doggfather, plus Dr Dre’s The Persistent. After which he unceremoniously yanked them off Spotify and numerous different streaming companies.
Why?
As Snoop instructed the Drink Champs podcast earlier this month: “Very first thing I did [after acquiring the Death Row rights] was snatch all of the music off these platforms historically identified to folks, as a result of these platforms don’t pay.
“These platforms get thousands and thousands of thousands and thousands of streams, and no person will get paid aside from the document labels.
“So what I needed to do is snatch my music off, create a platform, one thing just like Amazon, Netflix, Hulu. It’ll be a Demise Row app. And the music, within the meantime, will stay within the metaverse.”
“I need to create an avenue the place I can present folks how [they] don’t at all times should undergo the slave commerce, however can create our personal commerce, the place we’re participating with our personal followers that’s shopping for our music.”
Snoop Dogg on pulling his basic Demise Row albums off Spotify and different companies
Snoop then challenged the podcast’s host: “Go to Spotify proper now and lookup Demise Row music, see how a lot you could find.”
The artist continued: “We don’t play. It’s known as energy; it’s known as management.
“I did it on objective… ‘cos nobody in right here can inform you what a stream provides as much as. It’s a fraction of a penny… so that you get 100 million streams and also you don’t make one million {dollars}. So what the f*ck is that?
“You need me to maintain supplying you with my music, however any person’s making the cash, and it ain’t me. I can’t afford to maintain doing that.
“I need to create an avenue the place I can present folks how [they] don’t at all times should undergo the slave commerce, however can create our personal commerce, the place we’re participating with our personal followers that’s shopping for our music… [and] making us cash off the music that’s being traded and offered.”
“You need me to maintain supplying you with my music, however any person’s making the cash, and it ain’t me. I can’t afford to maintain doing that.”
Snoop Dogg
As MBW wrote in that Neil Younger op/ed again in January: “In an open letter, Younger [has] known as on his fellow stars to maneuver off the Spotify platform.
“In the event that they do – no matter their motivations – it may have repercussions far past polemical disputes over Covid-19, and whether or not or not Spotify cares extra about podcasting or music.
“It may, crack by crack, trigger an earthquake on the middle of Spotify’s enterprise.”
Dr Dre at present has 20 million month-to-month listeners on Spotify. Snoop Dogg has 23 million.
Crack. Crack. Crack.Music Enterprise Worldwide
